Popular Posts: New Energy Revolution Buy: First Solar FSLR5 Great Stock Opportunities for the Fourth QuarterZhone Turnaround a Buying Opportunity ZHNE Recent Posts: Verizon: Single And Eager To Mingle – VZ Zhone Turnaround a Buying Opportunity ZHNE New Energy Revolution Buy: First Solar FSLR View All Posts As a communications network equipment manufacturer, Zhone Technologies (ZHNE) was one of the most well-funded tech start-ups of all time when it was incorporated in 1999 in the midst of the technology boom.
However, after the failure of many dot.coms killed demand for networking equipment, a planned IPO in 2000 had to be scraped. The company then took its current form in 2003 after it was acquired by Tellium, but retained the Zhone name.
After several years of losses, ZHNE turned profitable this year with cost cuts, continued acceptance of the company’s core products, and less price competition from Chinese manufactures all driving the improvement. This return to profitability has led to strong gains so far in 2013, but I see more upside potential ahead as the company continues its turnaround story.
Much of the company’s success this year has been driven by its flagship MXK IP Multi-Service Terabit Access Concentrator (MXK) and multiple new Optical Line Terminal (OLT) and outdoor units in late 2009.
Management believes these products, along with its mature single-level multi service (SLMS) architecture offerings, allows its carrier service customers to offer new services that are essential for their revenue growth, such as Internet-based entertainment and the convergence of voice, data and video.
In 2012, ZHNE shipped more than 2,200 MXK systems to new and existing customers globally. It now has over 4,400 total MXK units deployed at over 150 service providers in more than 40 countries.
But ZHNE isn’t stopping there. A critical new product for the company is its FiberLAN (Local Area Network) Optical LAN Solution. The company believes that FiberLAN is the most cost-effective, efficient, and environmentally-friendly alternative to traditional copper-based Ethernet switches on the market today. That may not mean much to you and me, but it is an attractive product to the wireless operators ZHNE serves. FiberLAN offers superior bandwidth and connectivity as new cloud computing environments continue to restrict clogged LAN arteries. The company has just started shipping this product, but believes it is already being well received by customers and could generate $20-$40 million in revenues next year.
With carrier and cable competition providing growing triple play services (including high-speed Internet access and television, plus telephone) in individual residences, ZHNE believes that fiber in these home products will provide the best experience and become standard. Just this week, the company introduced a new digital subscriber line access multiplexer, called DSLAM. The product comes in a compact form that makes it ideal for deploying fiber in home products while providing very strong triple play services.
Zhone offers all these products to a widespread customer base, as 750 network providers on six continents have deployed its products. Domestic revenues accounted for 44% of the total revenues in 2012, followed by Europe, Middle East and Asia (30%), Latin America (24%), and Asia Pacific (2%).
ZHNE Back on TrackAfter years of inconsistent sales, declining margins and operating losses, Zhone turned a fourth-quarter profit last year of $805,000, with EPS of 2 cents per share strictly on lower operating expenses. Sales and gross profit in the quarter declined 15% and 13%, respectively.
However, results have been much more robust here in 2013. Through the first nine months of the year, revenues have grown 1%, but a better price margin allowed gross margins to increase significantly to 37.8% from 29.7%, and the company realized EPS of 9 cents a share versus a loss of 31 cents a year ago.
It should be noted that sales growth accelerated in the third quarter, with sales up 5% to $30.5 million. In addition, gross profit margins increased to 37.8% from 28.2%, and operating expenses continued to decline, which led to earnings of 5 cents a share versus a loss of 14 cents per share a year ago. Furthermore, management guided the fourth quarter to be the best of the year, so we could see improvement over not only last year’s first fourth-quarter profit of 2 cents per share, but also the 5 cents per share earned in the third.
After years of struggles, ZHNE has turned its business model around and is in a good position to keep growing. Management believes the better pricing environment will stick, and its exciting new product offerings are helping the company change with an evolving tech environment. If FiberLAN produces the $20-$40 million in sales management expects next year, it would represent a significant add-on to the $120 million in revenues the company should achieve in 2013.
Zhone also has a strong balance sheet, with $67.2 million of assets versus only $32.8 million of total liabilities. This nearly $35 million of net current assets could help finance an acquisition of the company, which has total market capitalization of just $120 million. It is also a potential acquisition target, as larger networking players may be interested in gaining its new technology.
I strongly recommend building your position in ZHNE slowly over time.
Bloomberg News 
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Alamy By now, most people recognize that the world of personal financial has undergone some drastic changes. Money expert and author Matt Rettick says Americans need to recognize that things will never go back to the way they were before the financial crisis. "The old fear used to be that you'd die right after you retired and you wouldn't have a chance to enjoy it," Rettick says. "The new fear is that you'll outlive your money." The days of relying on a combination of a pension from your lifelong employer and a reasonable Social Security check to support you in your old age are over. In fact, Rettick says, we're fast approaching a time when the average person could spend more years in retirement than working. His new book -- "All the Rules Have Changed: What You Must Do to Succeed in the New Financial Reality" -- delves into the new financial order. We recently talked to Rettick about the new financial strategies and how people need to adjust their plans in light of them. 5 Pillars of Financial Security and How to Replace Them 1. Pension plans are disappearing. "At their peak in 1983, there were 175,000 pension plans," says Rettick. "Today there are less than 25,000 pension plans and many of those are frozen so that new employees cannot join them. People are living 30 years on their pensions instead of two or three years, and stock market returns haven't been high enough, so many of these plans are insolvent." The solution: Rettick says you should create your own pension plan by setting up annuities for your retirement. 2. Social Security is unstable. "Since 2010 we've been paying out more money in Social Security benefits than we're taking in through payroll taxes," says Rettick. "Social Security will only become solvent if we decrease benefits or increase taxes. More than likely, they'll increase the age limits in the future." The solution: If you're under 40, you should act as if Social Security won't be there at all when you retire; if it is, then you'll have some bonus income in retirement. If you're older than 40, Rettick recommends working with a Social Security expert to help you decide when it's the right time to trigger your benefits. "If you take them at 62, you'll get 25 percent less than if you wait until you're 66, and if you wait until you're 70 you'll get 25 percent more than you will if you start at 66." 3. The stock market is volatile and unpredictable. "Twenty or 30 years ago, it was a big deal if the stock market moved 20 or 30 points in a day, but now we can see it move 400 points in a day," Rettick says. "The old rule used to be buy and hold because if you hang in there the market will come back. But depending on your age and whether you're in retirement, the impact of that strategy could be devastating." The solution: Be well diversified, says Rettick, and follow the "investment rule of 100." The rule of 100 says that you take the age to which you could potentially live (100) and subtract the age you are now. The percentage of your assets matching the age you are now should be invested in safe, no-risk, guaranteed accounts; the remainder should be invested in stocks. So, for example, if you're 60, then 60 percent of your investments should be no-risk and up to 40 percent should be in stocks. "Reducing losses is extremely important once you're over age 50," says Rettick. 4. Home equity is unreliable. "The three legs of your financial plan used to be a retirement plan such as a pension or a 401(k), Social Security, and personal savings," says Rettick. "For most people, their home represented a huge percent of their assets. We all saw what happened to those assets during the housing crisis, and even though housing values are going up again, 10 percent of homeowners are still underwater on their mortgages." The solution: Rettick recommends paying off your mortgage as soon as possible so that you own a safe and secure asset and are not in danger of losing your home. He also suggests that you don't rely on your home for cash flow the way some people did before the housing bubble burst. "Depend more on your savings and investments than on your home," he says. 5. People are living longer. "The majority of people feel they aren't ready for retirement and expect to be worse off in retirement," says Rettick. "The reality is that you need to be prepared to live for 20 or 30 years in retirement." The solution: Rettick recommends getting appropriate investment advice to avoid the erosion of your savings due to inflation, to avoid losses, and to prepare for long-term care costs. Common sense still applies "People can handle the new reality if they save more and spend less," Rettick says. "Everyone needs to eliminate debt as soon as possible and put the burden of the future in their own hands, ideally saving 10 to 15 percent of their income for retirement."
) soared on Monday morning following an update to the company’s revenue guidance.